Broker snap: Potential offer undervalues Vodafone's VZW stake, says Jefferies

25th Apr 2013 10:21

A potential offer by Verizon (VZ) for Vodafone's stake in their US wireless joint venture would have to increase substantially to please the British telecom group's shareholders, according to Jefferies.According to Reuters on Wednesday evening, Verizon could propose a $100bn cash-and-stock bid for Vodafone's 45% interest in Verizon Wireless (VZW)."Our sense is that VZ is attempting to up pressure on Vodafone to engage in discussions. Having unwound the conglomerate discount from the Vodafone share price in the last two months, we think Vodafone feels little pressure to sell out of VZW," Jefferies said.The broker estimates that Vodafone's net income growth would fall from 3.0% (including the VZW stake) to -7.0% excluding VZW.Jefferies said: "The glaring issue raised by last night's article is of course price. $100bn is nowhere close to the level at which Vodafone can consider a deal, even assuming a minimal capital gains tax charge. The Sunday Times article on March 24th floated a valuation for the VZW stake of $135bn (and this before estimate upgrades that followed last week's VZ first-quarter results)."The broker estimates the VZW stake is worth $121bn."The valuation will need to climb to much higher to create an outcome acceptable to VOD shareholders in our view."Jefferies has maintained a 'hold' rating and 179p target price for Vodafone.The stock was up 2.33% at 197.7p by 10:20 on Thursday.BC